Boston tucks away a $125 million windfall

More for Moneybags?
By DAVID S. BERNSTEIN  |  May 24, 2010

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As debate continues over the city’s finances — and whether the city of Boston can afford firefighters’ raises, branch libraries, community-center staffing, and other costs in tight times — the city is planning to quietly tuck away a one-time windfall of more than $125 million.

This mighty sum, due from the state coffers in the coming weeks, is in addition to the millions detailed by the Phoenix in last week’s cover story, which raised questions about Mayor Tom Menino crying wolf over budget woes.

The new revenue will be the byproduct of a law passed by the state legislature last week (expected to be signed by Governor Deval Patrick) that fixes an anomaly in how the state reimburses the city for teacher-pension funding. As the changeover takes place, the state will owe one final payment of $126.9 million — but rather than going to the General Fund, to be used in the city budget, it will go directly into a pension-liability fund, under an agreement worked out between state and city officials.

Some critics say at least a portion should be used to bolster the current budget — which cuts $60 million of staff and services, including the closing of four branch libraries.

The new law ends an arrangement unique to Boston since the state’s 1987 Pension Reform Act. Since then, the state has overseen teacher-pension assets for every other municipality, pre-funding the costs through actuarial accounting. But, in a holdover from pre-reform days, the state has continued to reimburse Boston in a “pay-as-you-go” manner, paying back the city for the prior year’s pension costs. Thus, the Fiscal Year 2010 (FY ’10) city budget included $118.8 million in “reimbursement” revenue from the state, equaling the amount the city spent in FY ’09 on teacher pensions.

All sides have finally agreed to shift the assets from Boston to the state, and to switch to the actuarially based budgeting method. This will eliminate the one-year lag between the city’s outlay and the reimbursement from the state — but that gap must first be made whole.

So, the state will make a final one-time payment to Boston of $126.9 million, to cover the city’s estimated FY ’10 costs. That money will be transferred “soon after the bill passes,” according to Jim Lamenzo, actuary for the state’s Public Employee Retirement Administration Commission.

Since the city already accounted for those FY ’10 costs in last year’s budget, the money is free-and-clear for the city to allocate as it wishes — at least, according to some who want to use the money to prevent budget cuts.

But city officials negotiated to have the full amount paid directly into Boston’s retirement fund for non-teachers, rather than into the General Fund, as in all previous years.

Adding to the retirement fund may be prudent fiscal management. It was also, according to city officials, a necessary part of negotiating the broader agreement. They argue that the state would not have agreed to something that looked like a huge windfall payment for Boston.

But some in the City Council say this is yet another example of Menino taking money outside the budget, and outside of the City Council’s reach — and of Menino worrying more about the city’s bond rating than its current needs.

“It’s always good to be prudent for tomorrow,” says Stephen Murphy, at-large councilor and candidate for state treasurer, “but we must first understand that we are living in today.”

  Topics: Talking Politics , Deval Patrick, Politics, Politics,  More more >
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